When I'm conducting training sessions/talking to a group, it happens many a times that discussion comes to the talent/skills/experience of mutual fund managers. Many ask the same question - if the fund managers are so good, why cant they predict market falls and sell equity holdings? Well, that is a wrong place to go into. Here's why.
Many alternatives to mutual funds target absolute returns (AIFs, few PMS etc). Within mutual funds space, the dynamic asset allocation funds can also do this to some extent. But an equity fund will remain an equity fund! Don't expect them to save you from a market crash.
Mutual Funds are long-only. An equity fund cannot sell all equity and sit on cash. They have to follow the investment objective. SEBI rules state that an equity fund should have anywhere between minimum 65-80% equity depending on the category.
Fund managers are not your financial advisers. They cannot decide whether you should invest in equity or not. They have to manage the fund as per scheme's mandate. So even if he/she is really convinced that markets might correct, they still cannot shift out of equity. They cannot even hedge the entire portfolio. They have to sit LONG! Else, it will literally be like a fraud. Bcoz many investors might still be bullish and they invest in the scheme thinking money will be invested in equity. Fund managers cannot decide for the investors.
Please don't expect equity fund managers to sell equity or hedge. Their mandate is to try & generate better returns than the scheme benchmark. So if NIFTY falls by 10% during a period & an equity fund has fallen by 4%, they have still done their job! They are relative-return funds.
Please don't expect equity fund managers to sell equity or hedge. Their mandate is to try & generate better returns than the scheme benchmark. So if NIFTY falls by 10% during a period & an equity fund has fallen by 4%, they have still done their job! They are relative-return funds.
Many fund managers try to dissuade you from investing more in their equity funds through their commentaries. Go through fund's factsheet or website to see what view their equity team carries. If you still want to invest in equity, they cant stop you!
Many alternatives to mutual funds target absolute returns (AIFs, few PMS etc). Within mutual funds space, the dynamic asset allocation funds can also do this to some extent. But an equity fund will remain an equity fund! Don't expect them to save you from a market crash.
